Federal budget should close gap between rhetoric and resources

TheStar.com – Opinion/Editorials – As Justin Trudeau seems to understand, when people lose trust that government will deliver on its promises, the results are not pretty. The federal budget must address this gap.
March 3, 2017. By Star Editorial Board

If there’s one area of all-party consensus in Canadian politics, it’s the focus on the middle class. It’s no wonder. That’s how most people see themselves, and that’s where the votes are.

For a decade, the Harper Conservatives tried to appeal to these voters by promising tax cuts and public safety. Justin Trudeau changed the promise, arguing for a more active government that would repair broken programs, broken infrastructure and a broken economic approach that too often benefits the few and leaves the many behind. He also signaled that his target includes those who aspire to join the middle class, recognizing that we all pay a price when our leaders ignore poverty and inequality.

Trudeau’s victory, and the promises that propelled him to it, created a spike in public trust in government after decades of erosion. The prime minister has made clear that he understands what’s at stake if he squanders that trust, that he has learned the lessons of Brexit and the rise of Donald Trump.

The day after the U.S. election, Trudeau said Trump won in part because too many Americans aren’t sharing in the country’s prosperity and that this problem is one Ottawa must also address. In a recent speech in Hamburg, he repeated this idea. “We can no longer brush aside the concerns of our workers and our citizens,” he said. “We have to address the root cause of their worries, and get real about how the changing economy is impacting people’s lives.”

That’s true, on both moral and practical grounds. Yet as we approach the federal budget, expected this month, it’s not at all clear how Trudeau intends to reconcile his increasingly progressive rhetoric with the stark lack of public resources.

Initially, the idea was that Trudeau would pay for his vision by gently bucking the orthodoxy of annual balanced budgets, running deficits of up to $10 billion per year for three years before balancing the books in 2019. That was a welcome direction, but things didn’t go quite as planned.

By December 2015, the Parliamentary Budget Office was warning that demographic factors and sagging commodity prices meant the government would likely come up far short. By the middle of last year, Finance Minister Bill Morneau had abandoned any talk of a timetable for erasing the red ink. And in December a Finance Canada report projected a very different fiscal future: annual deficits through to 2050.

The government can’t fund its progressive vision by racking up debt indefinitely, which sets up a difficult choice: raise more revenues or constrain the vision. The coming budget will be a test of the government’s commitment to middle-class fairness and economic justice more generally.

Initial signs have not been encouraging. After the Finance report in December, Morneau doubled down on his promise of “prudence” in health-care spending. But “prudence” is not the word for the government’s current approach. The feds’ offer of a new funding formula, which several provinces continue to reject, would decrease Ottawa’s already insufficient share of rising health costs, offloading risks to the provinces and ultimately to citizens.

We can, it seems, expect a very modest budget. As a senior Liberal strategist told Star columnist Paul Wells, “We don’t have the money to be that generous. And the populist budget was last year.”

But even if we can’t expect significant new investments for broad-based programs, the government must begin to close the gap between revenues and aspirations. First, by taking concrete steps to address immediately those areas where the need and risk are greatest, that is, not so much on the middle class, but on those who feel excluded from it. And second, to start bringing in more money and expand the scope for future action.

On the expenditure side, as the Star has argued before, there are a number of relatively straightforward measures that would quickly and meaningfully improve the lives of millions of Canadians, not least the one in seven now living in poverty. The government should, for instance, take immediate action to index the Canada Child Benefit to inflation, fix the EI system by creating fair and universal criteria for access, and pay for at least some of the recommendations that came out of the public consultation on affordable housing and homelessness.

The government should also, at a minimum, finally redress its most shameful failure, and provide the $155 million in emergency relief it promised to First Nations children living on reserves. The Canadian Human Rights Tribunal ordered it to do so, and has rebuked it on multiple occasions for failing to comply.

None of these would break the bank. But as study after study has shown, each would yield not only enormous social benefits, but also significant economic ones. There’s no reason to wait.

On the revenue side, there are at least two steps the government should take that would both significantly enrich the public treasury and address the perception that the economy is rigged in favour of the richest few.

First, it should continue to invest in tax compliance, working to improve Ottawa’s dismal record on collecting what’s owed to it. A recent report from the Conference Board of Canada estimated that the federal government misses out on between $16 billion and $47.8 billion per year in uncollected taxes, whether through the underreporting of income, tax avoidance or outright evasion. Even on the low end, that would fund a good number of major programs.

Second, it should limit or scrap some of the many loopholes in our unwieldy tax code that benefit the richest with no evident contribution to the public good. The Trudeau government has said it intends to find $3 billion in annual savings through a review of such tax expenditures, a plausible if modest aim. The review is a good idea, but there are a number of loopholes, such as the break on executive stock options, that we already know are both ineffective and highly regressive. They should go now.

The Trudeau government is clearly not to blame for our current financial challenges. But Canadians will be less forgiving if, at this time next year, the gap between rhetoric and resources persists. Either Trudeau is going to have to soften the progressive talk or, better by far, lay the groundwork now to pay for the vision he sold on his way to power.

As the prime minister himself has said, when people lose trust that government can or will deliver on its promises, the results are not pretty.